Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 (18 June 1959)

Nestlé offered records for a discounted price plus three chocolate wrappers. The copyright owner challenged this. The House of Lords ruled the wrappers, though of trivial value, formed part of the legal consideration, affirming the principle that consideration must be sufficient but need not be adequate.

Facts

Chappell & Co Ltd, the appellants, owned the copyright in a piece of music titled ‘Rockin Shoes’. The Nestlé Co Ltd, the respondents, were manufacturers of milk chocolate. To promote their chocolate sales, Nestlé entered into an agreement with a company that manufactured gramophone records of ‘Rockin Shoes’. Nestlé then advertised these records for sale to the public at a price of 1 shilling and 6 pence (1s 6d) each, plus three wrappers from their sixpenny milk chocolate bars. Chappell contended that this arrangement constituted a breach of their copyright. They argued that Nestlé could not rely on the compulsory licence provision under section 8 of the Copyright Act 1956, which allowed for the manufacture and sale of records for an ‘ordinary retail selling price’ subject to a royalty payment. Chappell’s position was that the inclusion of the wrappers meant there was no single ‘ordinary retail selling price’ because the consideration was not purely monetary.

Issues

The central legal issue before the House of Lords was whether the three chocolate wrappers formed part of the consideration for the sale of the record. If they did, it would mean the consideration was not purely a money price, making it impossible to determine an ‘ordinary retail selling price’ for the purpose of calculating royalties under the Copyright Act 1956. This raised a fundamental question about the definition of consideration in contract law.

Judgment

The House of Lords, by a 3-2 majority, allowed the appeal, finding in favour of Chappell & Co Ltd. The court held that the chocolate wrappers did form part of the consideration for the sale of the records.

Majority Opinion

Lord Reid, Lord Tucker, and Lord Somervell delivered the majority judgment. They reasoned that the requirement to provide wrappers was an integral part of the bargain and not merely a condition to qualify for the offer. Nestlé stipulated the wrappers as a requirement, and in contractual terms, that made them part of the consideration. The commercial purpose of the scheme was to increase sales of chocolate, and the wrappers provided direct evidence of such sales. Therefore, the wrappers had value to Nestlé. Lord Reid noted that a contracting party could stipulate for any form of consideration they wished, stating:

It is a perfectly good contract if a person says I will sell you a house if you will sweep my chimney.

Lord Somervell famously articulated the core principle that the adequacy of consideration is irrelevant:

A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.

The majority concluded that since the consideration included the wrappers, which have no fixed monetary value, it was impossible to identify the ‘ordinary retail selling price’. Consequently, Nestlé was not entitled to the statutory defence under the Copyright Act 1956 and was in breach of copyright.

Dissenting Opinion

Viscount Simonds and Lord Keith of Avonholm dissented. They argued that the wrappers were not part of the price or consideration for the records. In their view, the only consideration was the monetary sum of 1s 6d. The requirement to send wrappers was merely a qualifying condition to identify customers who had purchased Nestlé’s chocolate, acting as a marketing device. Viscount Simonds argued that the wrappers were valueless to Nestlé and were immediately thrown away upon receipt. He stated:

The requirement that three wrappers should be sent with the 1s. 6d. was not a sale or return basis… but an indication that the purchaser was a person qualified to obtain the record. They were of no value to the Nestlé Co.

The dissenters believed the scheme was a sale for a purely monetary price, and therefore Nestlé should have been protected by the provisions of the Copyright Act.

Implications

The decision in Chappell v Nestlé is a landmark authority on the doctrine of consideration in English contract law. Its primary significance is the powerful reinforcement of the principle that consideration must be sufficient but need not be adequate. The court will not engage in an assessment of the commercial value of the consideration agreed between the parties, so long as it has some value in the eyes of the law. The case clarifies that ‘value’ can be found in a commercial advantage or benefit to the promisor, such as the increased sales and promotion Nestlé gained from the wrapper requirement. It demonstrated a willingness by the courts to interpret ‘consideration’ broadly, cementing the idea that even items of trivial or sentimental value can suffice as good consideration if stipulated by a party to the contract.

Verdict: Appeal allowed.

Source: Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 (18 June 1959)